Direct Tax Code (DTC) draft was released in August 2009 for public comments. There has been discussion in financial forums about DTC. It is expected that DTC will be put before parliament in winter session this year 2013. DTC impacts almost all tax payers. Let’s see the impact of DTC on Capital Gains.
Equity shares and mutual funds held for more than 1 year
Capital gains occurring from equities and mutual funds based on equity after 1 year of investment will be computed after allowing certain deduction on capital gains. The deduction has not been finalized yet but if deduction is at 50% then only 50% of the capital gain will be considered. This adjusted capital gain will be added to one’s income and taxed at one’s income slab.
Present Taxation: Equity investments enjoyed 10% tax without taxation and 20% tax with indexation if held for more than 1 year.
Non-equity investment held for more than 1 year
Any unrealized capital gains on assets held between April 1 1981 to March 31 2000 will not be taxable. Capital gains occurring afterwards will be adjusted using indexation and the adjusted capital gains will be added to one’s income. Thus, these adjusted capital gains will be taxed at one’s income slab.
Present taxation: Non-equity transaction was treated as Long Term Capital Gains (LTCG) if held for more than 3 years and Short Term Capital Gains (STCG) if held for less than that. Taxation wise LTCG and STCG is taxed the same.
Investment held for less than 1 year
Any capital gains on investment held for less than 1 year will be added to one’s income and taxed at one’s income slab. There will not be any deduction or indexation allowed on such capital gain.
Present taxation: No change from current taxation.
Reference
Chapter 5 of DTC Revised Discussion Paper.
